Clinical Effectiveness Research Fee

Health care reform created the Patient-Centered Outcomes Research Institute which is tasked with reviewing and distributing comparative clinical effectiveness research information to help patients, doctors, purchasers and others make informed health care decisions through the distribution of comparative clinical effectiveness research findings.  The Affordable Care Act requires health insurers and self-funded health plan sponsors to pay a fee each policy or plan year ending on or after October 1, 2012 and before October 1, 2019 to fund the Institute.

The IRS issued proposed regulations providing guidance on the new Clinical Effectiveness Research (CER) fees as they apply to sponsors of group health plans.  The proposed regulations set out specific guidelines for payment of the fees.

Who Pays Fee.  The insurer is generally responsible for paying the required fees for an insured plan, while the employer is generally responsible for paying the fees for a self-funded plan.  If a self-funded plan is sponsored by multiple employers, the plan sponsor identified in the plan documents (or the employer considered to “maintain” the plan) is responsible for paying the fee.  

How to Report and Pay Fee.  The fee is reported on IRS form 720.  It has to be paid annually, by July 31 of the year following the year of assessment.  The first CER fee will be due July 31, 2013.

Amount of Fee.  The CER fee is $2 ($1 for the first plan year) multiplied by the average number of covered lives under the plan or policy.  Starting in 2014, the CER fee will be increased based on increases in national health care expenditures.  For the first plan year ending on or after October 1, 2012 and beginning before July 11, 2012, the plan sponsor can use any reasonable method for determining the average number of covered lives.  For subsequent plan years, self-funded plans can calculate the average number of lives for fee purposes in one of three ways:

  • Actual Count Method.  Actually count the number of covered individuals on each day and divide the total by the number of days in the year;
  • Snapshot Use Method.  Use information from a selected day each quarter to determine the average number; or
  • Form 5500 Method.  Use Form 5500 data.  If plan offers single and family coverage, add the participants at the beginning of plan year to participants at end of plan year.  If plan offers single coverage only, divide this number by 2.

Retirees are counted in the average number of covered lives.  Insurers may use similar calculation methods based on policy year (except for the Form 5500 method is replaced by reference to state filings).  The same calculation must be used consistently throughout the plan year, but may be changed in subsequent plan years.

Plans Impacted.  The fee rules apply to group health plans which include HMOs and retiree-only plans.  There are specific exceptions from the fees for certain benefits, including, for example, limited scope vision or dental plans, accident and disability plans, workers’ compensation, long term care plans, most health flexible spending account plans, HRAs, wellness programs, expatriate plans and stop-loss coverage.

Multiple Covered Lives.  The sponsor of more than one self-funded group health plan with the same plan year has to pay only one fee for the plan.  For example, if the plan includes self-funded prescription drug benefits and medical benefits with the same plan year, only one CER fee has to be paid.  However, if the employer offers two different plan options- one insured and one self-funded, it seems that the insurer will pay the CER fee on the insured plan and the plan sponsor will pay the fee for the self-funded plan.

For more information on the CER fee or to discuss how it may apply to you, please contact

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